Smith & Nephew Weathers the Delta Variant, and Our Fair Value Estimate Is Unchanged

Not surprisingly, Smith & Nephew’s third-quarter weakness in orthopedics was offset by strength in its sport medicine and advanced wound management segments. We’re holding steady on our fair value estimate, as year-to-date results remain on track with our full-year estimates for the firm. As we’ve seen with the other orthopedic device makers, procedure volume was hampered in the third quarter thanks to the delta variant, and we expect to see some recovery in the seasonally strong fourth quarter. However, we recognize that both Stryker and Zimmer Biomet managed to weather tough conditions relatively better than Johnson & Johnson and Smith & Nephew. Nonetheless, we see little to threaten Smith & Nephew’s narrow economic moat and that any changes to the switching costs that support the moat will likely change only gradually and over the longer term.